Randy Swan - “What Do You Do When Things Are Fundamentally Overvalued, But You Want to Remain Invested in the Market?" | #83

In Episode 83, we welcome fund manager, Randy Swan, who’s calling in from the Bahamas after being displaced from Puerto Rico by Hurricane Maria.

The guys start with Randy’s backstory, which leads into why he started Swan Global Investments. In part due to his background in managing liability risk at KPMG, Randy was interested in a way to diversify away market risk. This led him to develop an option-based market approach called the Swan Defined Risk Strategy (DRS), which might be summarized with Randy’s phrase “always invested, always hedged.”

Randy walks us through his DRS methodology, which relies on asset diversification and the purchase of puts to protect against market drawdowns. He gives us more info on the duration of the puts, generally how far out of the money the system targets, and other trade specifics. This dovetails into a discussion of selling options as opposed to buying them. Randy uses selling strategies in an effort to generate positive returns on an annual basis.  

Meb asks about the general response from investors, and how they view buying this type of portfolio “insurance.” Randy tells us most people think it makes sense, they just haven’t really been exposed to the idea. Rather, most people are used to hearing only about diversification.

The guys then discuss low volatility in the market. Randy gives us his thoughts, mentioning how now is a great time to hedge a portfolio given the low VIX. The conversation touches on whether you can still sell options in this low-VIX market. After all, it might be dangerous if volatility spikes. Plus, with so many investors having adopted a selling strategy in an effort to generate income, is this space crowded? Does it still work? You might be surprised to hear Randy’s take on it.

This is a great episode for options-fans and investors wondering how to stay in this market while adding some protection to their portfolios. You’ll hear more on volatility skew… the active versus passive debate (and how it misses the point)… Randy’s broad advice for listeners interested in implementing an options strategy… and of course, Randy’s most memorable trade.

Get all the details in Episode 83.

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